Bank failures: The 2008 Financial Crisis
Involvement of banks in subprime mortgage lending led to a rise in bank failures in the 2007- 2008 financial crisis, reaching a level not experienced since 1994. IndyMac, which failed in July, 2008, had roughly $1 billion in uninsured deposits held by 10,000 depositors. Washington Mutual (WaMu) failed in late September, 2008. With more than $300 million in reported assets, it was the largest bank failure in American history. JPMorgan Chase took over the bulk of WaMu’s deposits and branches. However, the transaction wiped out WaMu’s stockholders and most of its no deposit creditors. In early October, Wachovia was rescued by absorption into Wells Fargo on terms that preserved value for all depositors.
Ten Biggest Bank Failures, 1937-2008
- Washington Mutual, Seattle, 2008, $307.0 billion
- Continental Illinois National Bank and Trust, Chicago, 1984, $40.0 billion
- First Republic Bank, Dallas, 1988, $32.5 billion
- IndyMac, Pasadena, California, 2008, $32.0 billion
- American S&L Association, Stockton, California, 1988, $30.2 billion
- Bank of New England, Boston, 1991, $21.7 billion
- MCorp, Dallas, 1989, $18.5 billion
- Gibraltar Savings, Simi Valley, California, 1989, $15.1 billion
- First City Bancorporation, Houston, 1988, $13.0 billion
- Homefed Bank, San Diego, 1992, $12.2 billion
Source: Data from Federal Deposit Insurance Corporation, October, 2008
The financial rescue legislation of October 3, 2008, the Emergency Economic Stabilization Act, reduced the likelihood of further bank failures by increasing deposit insurance coverage from $100,000 to $250,000.